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REPORT TO THE CONGRESS

Examination Of Financial Statements Of The Tennessee Valley Authority For Fiscal Year 1970,-,,,,,,

BY THE COMPTROLLER GENERAL OF THE UNITED STATES

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REPORT TO THE CONGRESS

Examination Of Financial Statements Of The Tennessee Valley Authority For Fiscal Year 1970B-l,,,50

BY THE COMPTROLLER GENERAL OF THE UNITED STATES

COMPTROLLER GENERAL OF THE UNITED STATES

WASHINGTON. D.C. 20548

B- 114850

To the President of the Senate and the Speaker of the House of Representatives

This is our report on the examination of the financial statements of the Tennessee Valley Authority for fiscal year 1970, made pursuant to the Government Corporation Control Act (31 U.S.C. 841). We have included as an appendix to this report a description of TVA’s retirement system together with financial statements and the certified public accounting firm’s opinion thereon.

Copies of this report are being sent to the Director, Office of Management and Budget; the Secretary of the Treasury; and the Chairman of the Board of Directors of the Tennessee Valley Authority,

z nb Comptroller General of the United States

50TH ANNIVERSARY 1921- 1971

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COMPTROLLER GENERAL'S EXAMINATION OF FINANCIAL STATEMENTS OF REPORT TO THE CO??GRESS THE TENNESSEE VALLEY AUTHORITY FOR FISCAL

YEAR 1970 B-114850

DIGEST _-----

VHY THE EXAIUNATION ‘WAS MADE

The Government Corporation Control Act requires the Comptroller Gen- eral to audit the Tennessee Valley Authority annually.

FINDINGS AiVD CCdCLUSIONS

In the opinion of the General Accounting Office, the Authority's fi- nancial statements present fairly its financial position at June 30, 1970, and the results of its operations and the source and disposition of its funds for the year then ended, in conformity with generally ac- cepted accounting principles applied on a basis consistent with that of the preceding year and with applicable Federal laws. (See p. 20.)

Net income from power operations for fiscal year 1970 was $74.6 mil- lion, $24 million more than for fiscal year 1969. (See p, 6.) Of the $74.6 million, $57.6 million was paid into the U.S. Treasury as a return on the Government's investment in power facilities (see p. 8) and $15 million was paid into the U.S. Treasury as a partial repayment of the Government's investment (see p. 8) as required by section 15d of the Tennessee Valley Authority Act and the remaining $2 million in- creased proprietary capital.

Operating expenses and interest charges increased during fiscal year 1970 over comparable fiscal year 1969 amounts by 13 and 35 percent, respectively. As a result, the Authority increased power rates in August and October 1970. (See p. 7.)

On October 14, 1970, Public Law 91-446 was enacted, which increased the amount of bonds, notes, and other evidence of indebtedness which the Authority may have outstanding at any one time from $1.75 billion to $5 billion. (See p. 9.)

During fiscal year 1970, power-revenue bond sales of $300 million were made at effective interest rates ranging from 8.3 to 9.3 percent. (See p. 9.)

The aggregate net power income for the latest 5 fiscal years was about $2 million less than required under the Basic Bond Resolution to en- able the Authority to increase the amount of bonds outstanding. As

Tear Sheet

1

I I

a result, the Authority may issue only short-term securities during fiscal year 1971. (See pp. 9 and 10.)

The third Paradise steam unit in western Kentucky began commercial op- eration in February 1970. (See p. 12.)

The Authority now expects to begin operating its first nuclear power generating unit at Browns Ferry, Alabama, in April 1972, although originally planned for operation in fiscal year 1970. (See pa 12.)

Construction was started during the year on a new pumped-storage plant. During off-peak power usage periods, water will be pumped into a moun- taintop reservoir. Electricity generated when the water is released will help meet peak-period loads. (See p. 12.)

The quantity of coal available in the Authority's supply area declined to an all-time low and prices reached an all-time high in fiscal year 1970. The Authority's efforts to ensure adequate coal supplies in- cluded visiting coalfields to seek new sources of supply and obtaining advance deliveries of coal. (See pp. 12 to 14.)

Pollution control and abatement activities during fiscal year 1970 cost $30.3 million. TVA estimates that these activities will cost $38 mil- lion during fiscal year 1971. This program is concentrated largely on problems caused by the Authority's operations, such as emissions from s%eam plant stacks and warmwater discharges from steam plant cooling systems. (See pp. 1% to 18.)

RECOkPlENDATIONS OR SUGGESTIONS

None.

AGENCY ACTIONS AND UNRESOLVED ISSUES

MATT!YRS FOR CONSIDERATION BY THE CONGRESS

This report contains no recommendations or suggestions requiring action by the Congress. It is submitted to the Congress, as required by the Government Corporation Control Act, to disclose the results of the an- nual audit of the Authority's financial statements and such other in- formation deemed necessary to keep the Congress informed of the opera- tions and financial conditions of the Authority.

2

Contents

DIGEST

CHAPTER

1

2

3

4

EXHIBIT

I

II

III

IV

INTRODUCTION

GENERAL COMMENTS Power operations Fiscal year 1971 rate increases Proprietary capital and payments to the

Treasury of the United States Borrowing authority Fiscal year 1971 security sales Construction program Coal procurement Environmental quality activities

Air quality Water quality

SCOPE OF EXAMINATION

OPINION OF THE FINANCIAL STATEMENTS

Balance sheets, June 30, 1970, and 1969 25

Power program, net income and retained earnings for the years ended June 30, 1970, and 1969 a

Nonpower programs, net expense and accu- mulated net expense for the years ended June 30, 1970, and 1969

Source and disposition of funds for the years ended June 30, 1970, and 1969

Notes to financial statements

Page

1

3

5 5 7

8 9 9

11 12 15 15 17

19

20

27

28

30

31

SCHEDULE Page

A Completed plant, June 30, 1970 37

B Construction and investigations in progress, June 30, 1970 38

C Details of power expense for the year ended June 30, 1970 39

D Details of nonpower net expense for the year ended June 30, 1970 40

E Operating expenses of multiple-use facili- ties for the year ended June 30, 1970 44

F Administrative and general expenses for the year ended June 30, 1970 45

APPENDIX

1 Retirement system of the Tennessee Valley Authority 50

l3.t.u British thermal unit

TVA Tennessee Valley Authority

COMPTROLLER GENERAL'S RZPORT TO ?.'HE CONGRESS

EXAMINATION OF FINANCIAL STATEMENTS OF THE TENNESSEE VALLEY AUTHORITY FOR FISCAL YEAR 1970 B-114850

DIGEST ----we

WHY THE EXAMZNATION'WAS MADE

The Government Corporation Control Act requires the Comptroller Gen- eral to audit the Tennessee Valley Authority annually.

FINDINGS AND C~dCLUSIONS

In the opinion of the General Accounting Office, the Authority's fi- nancial statements present fairly its financial position at June 30, 1970, and the results of its operations and the source and disposition of its funds for the year then ended, in conformity with generally ac- cepted accounting principles applied on a basis consistent with that of the preceding year and with applicable Federal laws. (See p. 20.)

Net income from power operations for fiscal year 1970 was $74.6 mil- lion, $24 million more than for fiscal year 1969. (See p. 6.) Of the $74.6 million, $57.6 million was' paid into the U.S. Treasury as a return on the Government's investment in power facilities (see p. 8) and $15 million was paid into the U.S. Treasury as a partial repayment of the Government's investment (see p. 8) as required by section 15d of the Tennessee Valley Authority Act and the remaining $2 million in- creased proprietary capital.

Operating expenses and interest charges increased during fiscal year 1970 over comparable fiscal year 1969 amounts by 13 and 35 percent, respectively. As a result, the Authority increased power rates in August and October 1970. (See p. 7.)

On October 14, 1970, Public Law 91-446 was enacted, which increased the amount of bonds, notes, and other evidence of indebtedness which the Authority may have outstanding at any one time from $1.75 billion to $5 billion. (See p. 9.)

During fiscal year 1970, power-revenue bond sales of $300 million were made at effective interest rates ranging from 8.3 to 9.3 percent. (See p. 9.)

The aggregate net power income for the latest 5 fiscal years was about $2 million less than required under the Basic Bond Resolution to en- able the Authority to increase the amount of bonds outstanding. As

1

a result, the Authority may issue on1 short-term securities during fiscal year 1971. (See pp. 9 and 10. 3

The third Paradise steam unit in western Kentucky began commercial op- eration in February 1970. (See p. 12.)

The Authority now expects to begin operating its first nuclear power generating unit at Browns Ferry, Alabama, in April 1972, although originally planned for operation in fiscal year 1970. (See p. 12.)

Construction was started during the year on a new pumped-storage plant. During off-peak power usage periods, water will be pumped into a moun- taintop reservoir. Electricity generated when the water is released will help meet peak-period loads. (See p. 12.)

The quantity of coal available in the Authority's supply area declined to an all-time low and prices reached an all-time high in fiscal year 1970. The Authority's efforts to ensure adequate coal supplies in- cluded visiting coalfields to seek new sources of supply and obtaining advance deliveries of coal. (See pp. 12 to 14.)

Pollution control and abatement activities during fiscal year 1970 cost $30.3 million. TVA estimates that these activities will cost $38 mil- lion during fiscal year 1971. This program is concentrated largely on problems caused by the Authority's operations, such as emissions from steam plant stacks and warmwater discharges from steam plant cooling systems. (See pp. 15 to 18.)

RECOMMi7NDATIONS OR SUGGESTIONS

None.

AGENCY ACTIONS AlVD UNRESOLVED ISSUES

None.

MATTERS FOR CONSIDERATION BY TEE CONGRESS

This report contains no recommendations or suggestions requiring action by the Congress. It is submitted to the Congress, as required by the Government Corporation Control Act, to disclose the results of the an- nual audit of the Authority's financial statements and such other in- formation deemed necessary to keep the Congress informed of the opera- tions and financial conditions of the Authority.

2

CHAPTER1

INTRODUCTION

The General Accounting Office has examined the finan- cial statements of the Tennessee Valley Authority (TVA) for the fiscal year ended June 30, 1970.

A description of TVA's retirement system, together with related financial statements and the certified public accounting firm's opinion thereon, is included in the ap- pendix.

The Tennessee Valley Authority Act of May 18, 1933 (48 Stat. 58; 16 U.S.C. 831) created TVA, a Government cor- poration, to provide for the unified development of the Ten- nessee River system. TVA's functions include both the power program and nonpower.programs, such as flood control, navigation, and fertilizer and munitions development.

TVA expects that increasing power demands in the Ten- nessee Valley region will require a doubling of capacity in the next decade. During fiscal year 1970, 19.4 million kilowatts of generating capacity were in service and 10 mil- lion kilowatts of capacity were under construction. In- creasing construction and operating costs, coal shortages, and construction slippages hampered the power program dur- ing the year, and TVA expects these problems to continue.

At the end of fiscal year 1970, TVA had about 22,200 employees-- an increase of about 2,700 over the previous year. According to TVA, the increase resulted primarily from the accelerated power construction program.

A three-man Board of Directors manages TVA, Members are appointed to g-year terms, which expire at 3-year inter- vals, by the President of the United States with the advice and consent of the Senate, Board members at June 30, 1970, and the expiration dates of their terms are:

Aubrey J. Wagner, Chairman May 18, 1978 Frank E. Smith, Director II 81 1972 Don McBride, Director I? 11 1975

CHAPTER 2

GENERAL COMMENTS

In addition to providing for our examination of the financial statements, the Government Corporation Control Act (31 U.S.C. 841) provides for the Comptroller General to include in his annual report on the audit of each Government corporation such other information and comments as may be appropriate to keep the Congress informed of the financial condition and operations of each such corporation. There- fore we are including in the following sections of this re- port, information and comments on matters which we believe may be of interest to the Congress.

POWER OPERATIONS

TVA supplies power, at wholesale, to 160 municipal and cooperative electric systems and one small privately owned system, which distribute power to'more than two million customers in parts of seven States. Power is also sold di- rectly to 46 industrial power consumers having large or un- usual power requirements and to several Federal atomic, aerospace, and military installations.

Section 14 of the TVA Act requires that power accounts be kept in accordance with the uniform system prescribed for electric utilities by the Federal Power Commission. Operat- ing results of the power program for fiscal year 1970 are shown in exhibit II of the financial statements. The results are summarized and compared with those of fiscal year 1969, as follows:

I

5

1970 1969

Operating revenues: Sales of electric

energy $461,477,970 $388,099,883 Rents and other

revenues

Total operating revenues

Operating expenses

Operating in- come

Interest income

Total income

Interest charges

Net income

Payment of return on appropriation in- vestment

Increase or de- crease(-) in

18.137.729 15,181,053

479,615,699 403,280,936

374.214.625 329,822,456

105,401,074

15,360a

105,416,434

30,799,564

74,616,870

57,648,798 53.082.238

73,458,480

73,458,480

22,768,320

50,690,160

Percent ' in-

crease

19

19

19

13

43

44

35

47

9

retained earn- ings $ 16,968,072 $ -2,392,078

aIncome on temporary investments,

Substantially greater revenues were realized in fiscal year 1970 than in fiscal year 1969, because (1) more elec- tricity was sold during 1970 and (2) the average rate charged for electricity was higher during 1970. In March 1969 TVA increased the rates charged to consumers to help meet higher costs. Automatic adjustment provisions to cover increases in TVA's cost of fuel and borrowing money were put into effect in August 1969.

6

Operating and interest costs during 1970, however, were significantly higher than during 1969. TVA informed us that these costs were greater than anticipated. Also TVA bought more electrical power from other power producers than it sold to power producers during the year at a net cost of $9.6 million.

FISCAL YEAR 1971 BATE INCREASES

The act requires that TVA sell power at rates as low as feasible and yet adequate to maintain the financial soundness of the power program. Operating expenses and interest charges increased during fiscal year 1970 over comparable fiscal year 1969 amounts by 13 and 35 percent, respectively, According to TVA, these cost increases necessitated rate increases in fiscal year 1971.

The rate increases, which TVA expects will provide an increase in revenue of about 23 percent, were effective in two increments --on August 1 and October 2, 1970. The Au-' gust increase was based on existing rate schedules which provided that higher rates be effective automatically on August 1, 1970, in response to rises in the cost of fuel and money.

Since the automatic, August adjustment failed to provide revenues sufficient to cover the rapid increases in TVA op- erating costs, it had to be supplemented by a substantial increase in power rates on October 1 to obtain the additional revenues needed to meet rising costs, TVA and the distribu- tors agreed at that time to substitute a quarterly review procedure for the automatic annual adjustment.

Under the new procedure TVA's prospective power revenues and expenses are reviewed at the end of each 3-month period by a committee representing the distributors. The TVA Board then determines whether a rate adjustment--upward or down- ward--will be needed.

PROPRIETARY CAPITAL AND PAYMENTS TO THE TREASURY OF THE UNITED STATES

From the inception of TVA in 1933 to June 30, 1970, the United States made available to TVA $2,567 million in propri- etary capital through appropriations, bond purchases, and property transfers. During the same period, TVA repaid $417 million to the U.S. Treasury, retained earnings of $661 million from its power programs and incurred net ex- penses of $454 million on its other programs. At June 30, 1970, the Government's proprietary capital in TVA was $2,358 million,

Under section 15d of the TVA Act, as added by Public Law 86-137 on August 6, 1959, TVA is required to repay each year into the Treasury part of the net appropriation invest- ment in power facilities and pay a return on the outstanding investment. Beginning with fiscal year 1961, repayments to the Treasury are required, as follows: $10 million annually for the first 5 years, $15 million annually for the next 5 years, and $20 million annually thereafter until a total of $1 billion has been repaid. Although the Board of Directors may defer the payments for 2 years, this option has not been exercised. TVA had repaid $125 million to the Treasury un- der this provision at June 30, 1970, and about $292 million prior to fiscal year 1961.

The required payment to the Treasury of an annual re- turn on the net appropriation investment in power facilities is based on the average interest rate payable by the Treasury on its total marketable public obligations at the beginning of the fiscal year and on the unrepaid appropriation invest- ment as of the same time. The 10 annual payments of the re- turn on the appropriation investment that had been made as of June 30, 1970, amounted to $448.2 million and included a payment of $57.6 million in fiscal year 1970.

During fiscal year 1971, TVA will be required to pay into the Treasury from power proceeds $20 million as a re- payment of the appropriation investment and $65.1 million as a return on the investment. Computation of the return was based on the unrepaid appropriation investment of $1,088 million at July 1, 1970, and on the average Treasury interest rate of 5.986 percent at that date.

BORROWING AUTHORITY

TVA is authorized, under section 15d of the act, to issue and sell bonds, notes, and other evidence of indebt- edness to assist in financing its power program, Prior to the enactment of Public Law 91-446 on October 14, 1970, the amount outstanding at any one time was not to exceed $1.75 billion. Public Law 91-446 increased this limit to $5 billion.

Section 15d provides that the time of issuance and max- imum interest rates to be borne by the obligations are sub- ject to approval by the Secretary of the Treasury, who is authorized to purchase TVA interim obligations up to $150 million outstanding at any one time. Debt service on these obligations is payable solely from TVA's net power proceeds and has precedence over repayments of the appropriation in- vestment and payments of a return on investment made to the Treasury. Bond sales, which began in 1960, totaled $675 mil- lion as of June 30, 1970. Of this amount, power-revenue bond sales of $300 million were made in fiscal year 1970 at effective interest rates ranging from 8.3 to 9.3 percent.

Short-term power notes , generally maturing in about 4 months, were sold on a competitive-bid basis during the fiscal year to various underwriters at an average interest rate of 8.172 percent. At June 30, 1970, TVA had short-term notes outstanding of $321 million, a decrease of $31.7 mil- lion from the amount outstanding at the beginning of the fiscal year.

Advances from the Treasury, under provisions of section 15d of the act, were obtained at an average interest rate of 7.303 percent for the year. TVA had advances outstanding of $100 million from the Treasury at June 30, 1970.

FISCAL YEAR 1971 SFCURITY SALES

Under section 3.4 of the Basic Tennessee Valley Author- ity Power Bond Resolution, adopted October 6, 1960, TVA's net power income for the latest 5 fiscal years must have ag- gregated at least $200 million before the amount of bonds outstanding might be increased. Moreover,that minimum re- quirement is increased by $15 million for each one quarter

9

of 1 percent (or major fraction thereof) by which the aver- age interest rate that TVA is required to use in calculating the annual return on the net appropriation investment in power has exceeded 3-l/4 percent during those 5 years.

TVA failed to meet this requirement for the 5-year period ended June 30, 1970, as shown below, and, as a result may issue only short-term securities during fiscal year 1971.

Amount

Required aggregate income: Minimum Additional requirement .

Net power income: Fiscal year:

1966 1967 1968 1969 1970

(000 omitted)

$200,000 75,000a

$275,000

$ 47,889 40,746 59,082 50,690 74,617

$273,024

aThe applicable interest rate was 4.418. Therefore the ad- ditional requirement was 5 times $15 million, or $75 mil- lion.

10

CONSTRUCTION PROGRAM

At June 30, 1970, TVA's gross investment in fixed as- sets for all programs-- including construction and investi- gations in progress--was $4,423 million, During fiscal year 1970, additions to construction in progress amounted to $357.5 million and transfers to completed plant amounted to $253.5 million. A summary of additions to construction in progress during the year follows.

Direct power: Generating facilities:

Nuclear plants: Browns Ferry--3 units Sequoyah--2 units

Coal-fired steam plants: Paradise--l unit

(in commercial operation) Cumberland--2 units

Pumped-storage plant: Raccoon Mountain--4 units

Transmission lines, substations, and other facilities

Total direct power

Multipurpose facilities: Tellico Dam and Reservoir Tims Ford Dam and Reservoir Upper French Broad water

control system Bear Creek water control system Other

Chemical plant Land Between the Lakes and other

recreation and educational facilities

Navigation facilities General plant and equipment

Total additions to construction in progress in fiscal year 1970

Less reduction due to write-off of prior-year costs of flood control facilities

Net additions to construction in progress in fiscal year 1970

$116,183,736 la,427,474

14,277,420 100,613,282

6,090,303 9,591,653

45,381 448,258 609,355

$134,611,210

114,890,702

3,170,247

76,644,465

329,316,624

16,784,950

2,925,078

3,296,427 418,733

4,827,015

357,568,827

-44,542

$357,524,285

11

According to TVA's original plans9 one or more of the eight nuclear and coal-fired units were scheduled to go into operation in each of the 5 succeeding years beginning with 1970. In February 1970, the third Paradise steam unit in western Kentucky began commercial operation, The first of the nuclear units at Browns Ferry was scheduled to begin operation in 1970, the second in 1971, and the third in 1972. The units are now scheduled to go into operation in April 1972, January 1973, and October 1973, respectively.

According to TVA, construction at the Cumberland steam plant is on schedule and the units are expected to be in op- eration in July 1972 and April 1973. The two Sequoyah nu- clear units are scheduled for operation in April and Decem- ber 1974. Construction continued on the Tims Ford Dam which is scheduled for operation in 1971.

In addition to expansion of extra-high-voltage trans- mission lines and substations to facilitate increased power interchange and effect peak-load economies, TVA started con- struction of the Raccoon Mountain pumped-storage plant. During off-peak power usage periods, water will be pumped from the Tennessee River into a mountaintop reservoir, Electricity generated when the water is released will help meet peak-period loads.

Also gas turbines to be installed at the Allen steam plant had been ordered, as of the end of fiscal year 1970, for use during periods of peak power demands and emergency conditions. TVA expects these to be operational by the sum- mer of 1971.

Because of limited funds, construction on the Tellico Dam and Reservoir was limited primarily to land acquisition and road. and bridge relocation. Modernization of chemical facilities and construction of facilities for the recreation project, Land Between the Lakes, were continued during fis- cal year 1970.

COAL PROCUREMENT

TVA officials advised us that the quantity of coal available in TVA's supply area declined to an all-time low

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and prices reached an all-time high in fiscal year 1970. Stockpiles decreased from 4.4 million tons on June 30, 1969, to 2.9 million tons on June 30, 1970. On January 21, 1971, 4.4 million tons of coal were stockpiled. Over 32 million tons of coal were burned during the fiscal year.

To provide for its coal needs, TVA makes term, spot, and emergency purchases of coal. Term purchases are made under normal bidding procedures, and contracts for such purchases call for regular deliveries over periods of at least 6 months and usually longer than 1 year. Spot pur- chases are similar to term purchases except that the deliv- ery period may not exceed 4 weeks. For emergency purchases contracts are negotiated, rather than advertised, and usu- ally the delivery period is 6 months or less. TVA consid- ers an emergency to exist when the coal stockpiled at any one steam plant is insufficient for 60 days of continuous operation.

Because of the decline in coal stockpiles and because of poor response to invitations to bid on term purchases, TVA negotiated 42 contracts for emergency purchases during fiscal year 1970 compared with six contracts for emergency purchases in fiscal year 1969. The statistics on the method of coal procurement under contracts awarded in fiscal years 1969 and 1970 for power operations are shown below.

Method Tons

(millions) Percent 1969

Term 158.0 98.9 Emergency 0.9 0.6 spot 0.8 0.5

Total 159.7 100.0

1970

Term 46.1 91.3 Emergency 3.8 7.5 spot 0.6 1.2

Total 50.5 100.0

13

TVA indicates that there is a coal supply shortage caused by such factors as the coal industry's not develop- ing new coal mines to meet increased demands for coal, in- creased competition for the available coal supply, shortage of railroad coal cars and trained miners, wildcat strikes, equipment breakdowns, and adverse mining conditions. Ac- cording to TVA, the coal supply shortage resulted in rap- idly increasing prices. In addition, TVA pointed out that price increases under escalation provisions of existing contracts and increases in transportation costs also con- tributed to higher coal costs.

Most of TVA's contracts for term purchases provide for price escalation based on the Bureau of Labor Statistics Index of Wholesale Prices, All Commodities, During fiscal year 1970, the value of the index increased 3.4 percent, Consequently, prices for coal purchased under these con- tracts increased about $56,000.

Several of TVA's coal suppliers have made claims for price increase adjustments under the gross inequities clause, the renegotiation clause, or other clauses of their contracts. During fiscal year 1970, TVA reached agreement with several suppliers for price increases ranging from 9 cents to $1.69 a ton. Usually TVA was able to negotiate amendments to contracts and to reschedule excusable delivery deficiencies when otherwise the coal would not have been delivered because of cancellation of the contracts.

TVA's efforts to ensure adequate coal supplies included visiting coalfields to seek new sources of supply and ob- taining advance deliveries of coal. In addition, TVA nego- tiated a contract with a coal producer for the mining of about 1.5 million tons of coal from TVA-owned reserves. Also TVA entered into two long-term contracts under which it guaranteed payments on the producers' capital invest- ments. In return for TVA's guarantee of principal and in- terest on notes of $25 million, TVA received liens on the producers' equipment. The contracts call for the delivery of 2.35 million tons of coal a year for 17 years.

14

ENVIRONMENIXL QUALITY ACTIVITIES

Research, monitoring, and surveillance of environmental quality of the Tennessee Valley are coordinated with pro- grams of Federal and State pollution control agencies. TVA's program, however, is concentrated largely on problems caused by its own operations, such as emissions from steam plant stacks and warmwater discharges from steam plant cool- ing systems.

TVA's pollution control and abatement activities, dur- ing fiscal year 1970, cost $30.3 million. TVA estimates that these activities will cost $38 million during fiscal year 1971. The nature and cost of such activities and the source of funds used during fiscal year 1970 are as follows:

Remedial action to control pollution at TVA facilities (largely electrostatic precipitators, see p. 16) $25,676,000

Research, development, and demonstra- tions 3,122,OOO

Monitoring and surveillance of pollution sources 1,155,ooo

Assistance to State, local, and interstate agencies 316,000

Laboratory equipment and facilities 75,000

Total $30,344,000

Source of funds: Power program Appropriations Reimbursements

Total

from others

$26,158,000 1,855,OOO 2,331,OOO

$30,344,000

Air quality

All 11 coal-fired power plants in TVA's power system are equipped either with cyclone furnaces which discharge about 30 percent of the ash produced during combustion as fly ash or with pulverized fuel furnaces which discharge over half of the ash produced as fly ash. The remaining ash stays in the furnaces as bottom slag.

15

TVA plants built in the 1950's had mechanical fly ash collectors capable of removing about two thirds of the fly ash produced. This equipment met prevailing air-quality standards at the time of construction, but the rapid growth of power generation and the advent of more stringent State. air-quality standards required better ash collection methods. In 1960, TVA began adding more efficient electrostatic pre- cipitators at an estimated cost of $100 million. TVA esti- mated that, of 3.2 million tons of fly ash generated at its power plants in 1969, about 0.6 million tons were released into the atmosphere, an ash removal efficiency of 81 percent. TVA estimates that by 1975 only 2 percent of the fly ash gen- erated will be released into the atmosphere, if all equip- ment being installed meets specifications.

In addition to producing fly ash, the burning of coal produces significant quantities of gaseous sulfur dioxide. TVA estimates that in 1969 its power plants released 1.8 mil- lion tons of sulfur dioxide into the atmosphere. Pending the development and application of more effective processes, high stacks have been used to disperse the gas and thus limit its concentration at ground level.

With few exceptions the use of tall stacks has been ef- fective in preventing significant vegetation damage, but the construction of larger units and the trend toward more strin- gent air-quality standards have led to long-range plans for developing sulfur dioxide removal systems. TVA plans to in- stall a research and demonstration wet limestone scrubber system for sulfur dioxide removal on a unit at the Widows Creek steam plant at a projected cost for the unit of more than $10 million.

In addition to its programs, TVA for several years has been carrying out studies and tests of sulfur dioxide re- moval processes under the sponsorship of the National Air Pollution Control Administration. Full-scale tests at the Shawnee steam plant of a dry limestone injection process and additional research are expected to cost $7.3 million over a 3-year period. TVA hopes to incorporate advances in tech- nology resulting from the studies and tests at Shawnee into the wet limestone scrubber unit planned for the Widows Creek plant.

16

Water quality

Steam plant electric power production involves the dis- posal of large amounts of waste heat into cool water circu- lating through heat exchangers. For each kilowatt-hour of electrical energy produced in a modern coal-fired plant, about two thirds of the heat from the coal is waste heat, most of which must be dissipated- in cool water. Nuclear plants are expected to produce about 40 percent more waste heat than coal-fired plants.

Since 1955 TVA has been studying the distribution of heated-water discharges into streams and reservoirs from its coal-fired plants. The first plants presented few problems since their discharges were relatively small compared with the size of receiving streams. Larger discharges of waste heat evolved with the increased production of electricity and the use of larger generating units. For example, the Watts Bar plant, placed in operation during the 1940's, has a generating capacity of 240,000 kilowatts and uses 280,800 gallons of cooling water a minute to dissipate the 24.7 mil- lion B.t.u.'sl of waste heat a minute. In contrast, the Browns Ferry nuclear plant will have a generating capacity of 3.5 million kilowatts and will use 1.8 million gallons of cooling water a minute to dissipate 370 million B.t.u.'s of waste heat a minute.

TVA advised us that the standards for stream tempera- ture for the design of water-cooling equipment at the Browns Ferry nuclear plant and subsequent plants used by TVA are predicated to some extent on the standards which the Federal Water Quality Administration approved for the State of Geor- gia in 1967. In 1969, according to TVA, the Administration approved more stringent standards for two other States--Vir- ginia and North Carolina. TVA has no thermal power plants in these three States where water temperature standards have

1 A British thermal unit is the amount of heat required to raise the temperature of 1 pound of water lo F. at or near its point of maximum density.

17

been approved. A TVA official has informed us that TVA will, in every case, do what is required to meet applicable State standards when they are formally established.

The Federal Water Quality Administration and TVA are planning a $2.4 million research project at the Browns Ferry nuclear plant to study thermal pollution effects on aquatic life. Eight naturalistic stream channels are planned, each varying in depth from 1 to 4 feet. Two channels will serve as biological controls, and the other six channels will con- tain water at temperatures above that in the control chan- nels. TVA officials stated that results from this project should contribute greatly to the knowledge of actual effects of heated discharges on aquatic life.

TVA also conducts projects and sponsors research at various schools on methods of controlling aquatic plants. The luxuriant growth of aquatic plants sometimes forms dense mats of plants in shallow water, which block small boats and swimmers, clog water intakes at steam plants, and create hab- itats for mosquito breeding.

TVA began a program on environmental radioactivity mon- itoring at Browns Ferry early in 1968. This program will provide a continuing check on the effectiveness of controls incorporated into the plant's design and operation in con- trolling the levels of radioactivity in the atmosphere, earth, and aquatic environments.

18

CHAPTER 3

SCOPE OF EXAMINATION

Our examination of TVA's balance sheet as of June 30, 1970, and the related statements of power and nonpower pro- grams and of source and disposition of funds for the year then ended was made in accordance with generally acceIfted auditing standards and included such tests of the account- ing records and such other auditing procedures as we con- sidered necessary in the circumstances. ':i I

As provided by section 15d(c) of the TVA Act, TVA em- ploys a firm of certified public accountants to audit its accounts and financial statements for each fiscal year, to facilitate TVA's issuance and sale of revenue bonds, The audit does not take the place of that required of our Office under the Government Corporation Control Act. Cur audit included observations and tests of the firm's audit work.

19

CHAPTER 4

OPINION OF THE FINANCIAL STATEMENTS

The financial statements (exhibit I through IV and schedules A through F) were prepared by TVA. In our opinion, these financial statements present fairly TVA's financial position at June 30, 1970, and the results of its operations and the sources and disposition of its funds for the year then ended, in conformity with generally accepted account- ing principles applied on a basis consistent with that of the preceding year and with applicable Federal laws,

The public accounting firm's opinion on the financial statements follows.

20

LYBRA?VD,ROSSBROS.&MONTGOMERY CERTIFIED PUBLIC ACCOUNTANTS

COOPERS r: LYRRAND IN P*INCIP*L AFlEA5

OF THE W09LO

To the Board of Directors of Tennessee Valley Authority:

We have examined the accompanying financial statements of TENNESSEE VALLEY AUTHORITY at June 30, 1970 and 1969 and for the years then ended. Our examination was made in accordance with gener- ally accepted auditing standards, and accordingly included such tests of the accounting records and such other auditing procedures as we considered necessary in the circumstances.

In our opinion, Exhibits I, II, III and IV of the aforemen- tioned financial statements present fairly:

(1) the financial position of the Authority at June 30, 1970 and 1969, and the results of operations and source and disposition of funds of its several programs for the years then ended; and

(2) the assets and liabilities of the Authority at June 30, 1970 and 1969, relating to the power program, and the results of operations and source and disposition of funds of that program for the years then ended,

all in conformity with generally accepted accounting principles applied on a consistent basis.

The supplemental information appearing in Schedules A to F, inclusive, which has been subjected to audit procedures applied in the examination of the basic financial statements, is, in our opinion, fairly stated in relation to the basic financial statements taken as a whole.

New York, August 28, 1970.

21

-CIAL STATEMENTS

23

TENNESSEE VALLEY AUTHORITY (A CORPORATION WHOLLY OWNED By THE UNITED STATES OF AMERICA)

BALANCE SHEETS JUNE 30. 1970 AND 1969

ASSETS

Power program All programs 1970 1969 1970 1969

( Thousands ) PROPERTY, PLANT, AND EQUIPMENT,

substantially all at original cost

Completed plant; schedule A Multipurpose dams; note 1 Single-purpose dams

Steam production plants Other electric plant

Other plant

Less accumulated depreciation; note 2

Construction and investigations in progress; schedule B and note 3

Nuclear fuel in process of fabrication; note 4

$ 478,167 $ 477,324 62,891 61,204

1,686,930 1,516,730 974,870 922,046

3,202,858 29977,304 924,447 855,979

2,278,411 2,121,325

481,918 386,354

24,807 13,230

Total property, plant, and equipment 2,785,136 2,520,909

$ 961,970 $ 955,403 62,891 61,204

l&86,930 1,516,730 gi'4,87o 922 ) 046 161,851

3,848,512 -+? 3,610, 62

549,557 445,264

24,807 13,230

3,378,266 3,097,978

CURRENT ASSETS

Cash U. S. Treasury bills, at cost

(approximates market)

Total cash and investments Accounts receivable

Inventories , principally at average cost; note 4

42,384

15,982 58,366 45,853

37,507

23,275

23,275 36,519

44,214

64,210 44,928

15,982 80,192 %928 50,562 41,295

43,044 ' 50,541

Total current assets 141,726 104,008 173,798 136,764 '

DEFERRED CR4.RGES Unamortized debt discount and expense 7,078 7,063

Total assets $2,933,940 $2,631,980

7,078 7,063

$3,559,142 $3,241,805

Notes 1 through 8 following the exhibits are an integral part of the financial statements.

*Deduct

EXHIBIT I

LIABILITIES

PROPRIETARY CAPITAL I Appropriation investment; note 5

Total congressional appropriations Transfers of property from other Federal agencies

Less repayments to General Fund of the U. S. Treasury; note 6

Appropriation investment

Retained earnings of power program; exhibit II

Accumulated net expense of nonpower programs; exhibit III

Total proprietary capital

LONGTERM DEBT; note 7

SHORT-TERM NOTES; note 7

OTHER CURRENT LIABILITIES Accounts payable IQnployees' accrued leave Payrolls accrued Interest accrued

B .

Total other current liabilities z. 9 DEZTRREDCREDITS

Unamortized debt premium

CONTRIBUTIONS IN AID OF CONSTRUCTION

COMMILitBWrE; note 3

Total liabilities $2,933,940 $2,631,980 $3,559,142 $33241,805

Power program All programs 1970 1969 1970 1969

(Thousands )

$19377,545 $1,376,237 &449,944 $2,399,3@'

3lO,O59 295,059 351,601 336,593 1,088,315 1~01,850 2~50,781 2,113,248

660,879 643,911 660,879 643', 911

1,749,194 1,745,761 2,357,634 2,339,w

675,000 375,000 675,000 375,000

421,000 452,655 421,000 452,655

69,268 43,980 76,251 52,262 7,641 7,510 15,370 15,015 3,531 2,323 4,581 2,983 8,244 3,819 8,244 3,819

87,684 57,632 104,446 74,079

303 183 303 183

759 749 759 749

454,026* 418,020*

25

EXHIBIT II

TENNESSEE VALLEY AUTHORITY POWER PROGRAM

NET INCOME AND RETAINED EARNINGS FOR THE YEARS ENDED JUNE 30. 1070 AND 1969

Kwh Amount Kwh Amount (Thousands)

OPERATING REXRNGKS Sales of electric energy

Municipalities and cooperatives Federal agencies Industries Electric utilities

Total outside sales Interdivisional

Total sales of electric energy Rents

Total operating revenues

53,692,918 $285,483 49,008,196 $222,235 13,069,614 59,426 14,826,9W 63,570 22,012,611 105,995 20,568,110 92,239

1,273,680 90,048,823

1,300,494 859703,709

2% 3,2 1

OPERATING EKPENSES; schedule C Production Transmission Customer accounts Demonstration of power use Administrative and general Payments in lieu of taxes Social security taxes Provision for depreciation

Total operating expenses

246,071 15,085

335 1,060

18,043 16,098 2,456

75-067 37&5

Operating income 105,401

yx$

'304 1,022

15,551 14,510 2,198 1 672

&%3 A 73,458

INTEREST INCOME 15 Total income 105,416 73,458

INTEREST CHARGES Interest on long-term debt Other interest expense Amortization of long-term debt discount,

premium, and expense, net Interest charged to construction and

nuclear fuel; note 4 Total interest charges

30,721 14,797 31,559 23,924

71 83

16 036+ 22,768

Net income

31,552* 30,799 74,617 50,690

Payment of return on appropriation investment; note 6

Increase or decrease* in retained earnings 57,649 16,968

53,082 2,392*

646,303

$643,911

Retained earnings at beginning of period 643,911

Retained earnings at end of period $66~879 - Notes 1 through 8 following the exhibits are an integral part of the financial statements.

*Deduct

27

EXHlBlT .I11 Page 1

TENNESSEE VALLEY AUTHORITY NONPOWER PROGRAM§

NET EXPENSE AND ACCUMULATED NET EXPENSE

FOR THE YEARS ENDED JUNE 30. 1970 AND 1969

WATER RESOURCES DEVELOPMENT Navigation operations

Studies and investigations Operation and maintenance of facilities Provision for depreciation

Total expense of navigation operations

Flood control operations Studies and investigations Operation and maintenance of facilities Local flood control improvements Provision for depreciation

Total expense of flood control operations

Regional water quality management Fish and wildlife development Surveys and general studies for river development Recreation projects

Total expense of water resources development

FERTILIZER AND MUNITIONS DEVELOPMENT Developmental production

Cost of products distributed, including depre- ciation and depletion of $l,843,oOo in 1970, $1,674,000 in 1969

General expenses Retirements of manufacturing plant and equipment Other general expenses

Total general expenses Total production expense

Less transfers and sales of products Transfers to TVA programs, at market prices

Fertilizer industry demonstrations Farm test demonstrations Agricultural projects Other

Direct sales Total transfers and sales Net expense of developmental production

Fertilizer introduction Fertilizer industry demonstrations

Fertilizers used Educational distribution expense

Less industry payments for fertilizer

1970 1969 (Thousands)

$ 2 2: 2:751

$ 2 2: 2:723

5,745 5,721

699 2,198

906 1,264 5,067

1,389 306

E;

13,937

700 2,181

331 1.240 k’+%’

u77 287 868 506

13,111

22,912 20,643

2,469 1

-+d 2&i

YE 508

0 -8 13,95

ii$z 7,783

z!i -%5- 3 s&r5

14fz 453 38

1?291 -3 17,22

7,291

14,877 1 14

-5-t f4sz6 -i@3

28

EXHIBIT .I11 Page 2

TENNESSEE VALLEY AUTHORITY NONPOWER PROGRAMS

NET EXPENSE AND ACCUMULATED NET EXPENSE

FOR THE YEARS ENDED JUNE 30. 1970 AND 1969

FERTILIZER AND MUNITIONS DEVELOPMENT - continued Fertilizer introduction - continued

Farm test demonstrations outside the Valley Fertilizers used Planning and supervision

Less farmer payments for fertilizer

Net expense of fertilizer introduction

Research and development Net expense of fertilizer and munitions

development

GENERAL RESOURCES DEVELOPMENT Agricultural projects

Fertilizers used Planning and supervision

Less farmer payments for fertilizer

Development investigations and general expenses Net expense of agricultural projects

Forestry projects Tributary area development Regional development planning Demonstrations in education and manpower development Minerals projects Environmental quality projects

Net expense of general resources development

LAND BETWEEN THE LAKES OPERATIONS

TOPOGRAPHIC MAPPING

OTHER EXPENSE, NET

Net expense; schedule D

Accumulated net expense at beginning of period

Accumulated net expense at end of period $454,026 $418,020

1970 1969 (Thousands)

$ 423 $ 410 509 510 932 920

-+% -+f 2,497 2,279

4,674 4,468

14,462 14,530

453

+4

A$ '327

1,346

508

-T-E '293

-Tz 1,488

995 1,362

8%

:2 215

5,712

1,449

405

41

36,006

418,020

987 1,175

299 40

162 167

4,318

1,272

374

22

33,627

3% 393

Notes 1 through 8 following the exhibits are an integral part of the financial statements.

29

EXHIBIT IV

TENNESSEE VALLEY AUTHORlYY SOURCE AND DISPOSITION OF FUND5

FOR THE YEARS ENDED JUNE 30. 1970 AND 1969

SOURCE Net power proceeds

Power operations; exhibit II Operating revenues Interest income

Deduct operating expenses, less noncash charges; note below

Sale of power facilities Total net power proceeds

Gross proceeds from nonpover programs Sales of fertilizer; exhibit III

Industry payments Farmer payments Direct sales

Recoveries of operating expense

Sale of nonpower facilrties Total nonpower proceeds

Sale of long-term bonds Increase in chart-term notes Congressional appropriations Property transfers Contributions in aid of construction

Total source

DISPOSITION Expended for plant and equipment, excluding

capitalized interest; note 4 Less salvage from plant transfers, and

depreciation charged to construction and clearing accounts

Payments to U. S. Treasury; note 6 Return on appropriation investment Repayment of appropriation investment

Expensa of nonpower programs, less noncash charges; note below

Interest Deferred debt expense, net Decrease in short-term notes Increase or decrease* In current assets lesr other current liabilities; note 4

Total disposition

Power progrem All programs 1970 -,.- 1969 1970 1%9 ---

( Thousanas )

$479,616

m&

fiz%J 180,959

299,241

1,308 157 10

$481,675

8311,382 $252,272 $337,809 $281,760

3tJ-$% 57,&9

w

62,28i 7930

31,655

7,666 8,771* s lo, 674*

$481,675 $349,548‘ b550,202 #+15,5c$

8403,281

403,281

F&g

d

100,227 102,655

862

3

$3491548

i&3

53,082

-it%%

38,72; 2,on

8479,616 $403,281

d 403,281

14,206 504

Tifg

x%

$2

5?$i ’ 10

12,451 596

2,288 15,335

-i&i ‘618

ia+ l&655

50,250 230

0

$550,205 $415,508

57,649

9 T2,

45,573 62,280

793s 3,655

Power Nonpower Note: Noncash charges consist of: provisions for depreciation

Provisions for depletion $ 7516; $ 71,672 8 6,4;; $ 6,250

Retirements of fertilizer manufacturing facilities 677 --- 2,di;

$ 75,069 b 71,672 $ 7,150 $ 8,734 -- Notes 1 through 8 following the exhibits are an integral part ~finan~tements. *Deduct

30

NOTES TO FINANCIAL STATEMENTS

1. Allocation of cost of multipurpose projects--Section 14 of the TVA Act requires TVA's Board of Directors to allocate the cost of completed multipurpose projects, subject to the approval of the President of the United States. The cost of facilities installed exclusively for a single purpose is assigned directly to that purpose; the cost of multiple-use facilities is allocated among the various purposes served.

The total investment of $~1,970,000 in ccmpleted multipurpose dams at June 30, 1970, is classified as follows:

Power

Navigation

Flood control

Investment

Direct Multiple-use Total

(Thousands)

$302,683 $175 9 484 $478,167

150,473 137,309 287,782

59,662 128,516 188,178

Tributary area development

Total

19 7,824 7,843

$5~ ,837 $449,133 $961,970

2. Depreciation policy--Straight-line depreciation is provided for substantially on a composite basis. Rates of depreciation are derived from engineering studies of useful life and are reviewed each year.

3. Estimates of cost to complete major construction projects, and commitments--The cost to complete the major power projects (including nuclear fuel) under construction or authorized for construction at June 30, 1970, is estimated to be $1,614,210,000, including commitments of $858,686,000 for materials and services contracted for and not delivered. The corresponding estimate for multipurpose snd nonpower projects is $233,140,000, including commitments of $5,204,000. Additional contractual commit- ments of $5,742,000 for multipurpose and nonpower projects had been entered into at June 30, 1970, on which TVA's obligation is limited by the availability of funds from congressional appropriations for succeeding fiscal periods.

TVA and the City of Memphis, Tennessee, have entered into agreements under which (1) TVA sells to the City all the power and energy requirements of its electric dis- tribution system, and (2) the City leases to TVA the Thomas H. Allen steam-electric generating plant with an installed capacity of 990,000 kilowatts; each agreement is for a term of 20 years, beginning January 1, 1965. The lease agreement provides for annual rental payments of $~,~OO,OOO and grants TVA an option to buy the plant for $2,000,000 at the end of the lease term.

4. Nuclear fuel-Nuclear fuel has been reclassified from inventories to property, plant, and equipment, and includes interest of $1,944,000 recorded during the year ended June 30, 1970, of which $475,000 relates to the prior year.

31

TENNESSEE VALLEY AUTHORITY NOTES - CONTINUED

5. Appropriation investment --Changes in appropriation investment during ti,e years ended June 30, 1970 and 1969, were as follows:

Power program All programs 1970 1969 1970 1969

(Thousands)

Congressional appropriations $ 1,308 $ 862 Transfers of property from

other Federal agencies 5 $6:

112 974

Less repayments to General Fund of the U. S. Treasury 15,000 15,000

Increase or decrease* for the period 13,535* 14,026*

Balance, beginning of period 1,101,850 1~15,876

Balance, end of period $1,088,315 $1,101,850

Action on a request for an additional appropriation available as of July 1, 1970, is pending in the Congress.

6. Payments to the U. S. Treasury--Section 15d of the TVA Act requires the payment from power proceeds of a return on the net appropriation investment in power facilities plus repayments of such investment, beginning with fiscal year 1961. The amount of return payable during each fiscal year is based'on the appropriation investment as of the beginning of that fiscal year and the computed average interest rate payable by the U. S. Treasury on its total marketable public obligations as of the same date. The repayment schedule calls for payment of not less than $10 million for each of the first five fiscal years (1961-19651, $15 million for each of the next five years (1966-1970), and $20 million for each year thereafter until a total of $1 billion shall have been repaid. The payments required by Section 15d may be deferred under certain circumstances for not more than two years.

$ 50,600 $ 50,250

1,941 L 52,541 50,:S:

15,008 15,002

37,533 35,478 2,113,248 2,077,770

$2,150,781 $2,113,248

of $50,080,000 to become

Required payments have been made as follows:

Total to June 30, 1969 Fiscal year 1970

Return Repayment Total (Thousands)

$390,597 $110,000 $500,597 57,649 15,000 72,649

$448,246_ $125,000 $573,246

For fiscal year 1971 the required payments will be $65,147,000 as a return and $~O,OOO,OOO as a repayment, a total of $85,147,000.

32

TENNESSEE VALLEY AUTHORITY NOTES-CONTINUED

In addition to the payments from power proceeds, $8,000 of nonpower proceeds was paid to the U. S. Treasury in fiscal year 1970 under the provisions of Section 26 of the TVA Act. This brought the total payments from nonpower proceeds to $41,542,000.

Prior to 1961, under then existing legislation, TVA paid to the Treasury $185,05g,OOO of power proceeds. In addition, $65,072,000 of bonds sold to the Treasury and Recon- struction Finance Corporation in fiscal years 1939-1941 have been fully repaid from power proceeds. Section 26 of the TVA Act provides for annual payments to the Treasury of any power or nonpower proceeds not needed for the operation of dams and reservoirs, the conduct of the power program, and the manufacture and distribution of fertilizers.

7. Borrowing authority--Section 15d of the TVA Act authorizes TVA to issue bonds, notes, and other evidences of indebtedness up to a total of $1,750 million outstanding at any one time to assist in 'financing its power program. Action is pending in the Congress on an increase in this borrowing authority from $1,750 million to $5 billion. Debt service on these obligations, which is payable solely from TVA's net power proceeds, has precedence over the payments to the U. S. Treasury described in note 6.

Evidences of indebtedness issued under Section 15d and outstanding on June 30, 1970, consist of the following:

(Thousands) Long-term debt

4.40$ Power Bonds 1960 Series A, due November 15, 1985 4-5/s Power Bonds 1961 Series A, due July 1, 1986 4-l/2$ Power Bonds 1962 Series A, due February 1, 1987 5.7@ Power Bonds 1967 Series A, due May 15, 19% 6-3/&S Power Bonds 1967 Series B, due November 1, 1992 % Power Bonds 1969 Series A, due June 1, 1974 8-l/4$ Power Bonds 1969 Series B, due October 15, 1994 9% Power Bonds 1970 Series A, due March 15, 1995 g-l/@ Power Bonds 1970 Series due 8-3/4%

B, June 15, 1995 Power Bonds 1970 Series C, due June 15, 1975

Total long-term debt 675,000

$ 50,000 50,000 45,000 70,000 60,000

100,000 100,000 100,000

50,000 50,000

Short-term notes

Payable to U. S. Treasury 100,000 Payable to public 321,000

Total short-term notes 421,000

$l,og6,ooo

8. Retirement plan--TVA has a contributory retirement plan which covers substantially all of its salaried employees. The cost of currently accruing benefits is funded cur- rently, ana“the unfunded prior service cost is being amortized and funded over a period of 36 years from July 1, 1969. The cost of the plan to TVA for the fiscal years ended June 30, 1970 and 1969, was $l2,355,000 and $10,593,000, respectively.

33

SCHEDULES

SCHEDULE A

TENNESSEE VALLEY AUTHORITY COMPLETED PLANT

JUNE 10. 1070

Assets

Power Multipurpose dams; note a Single-purpose dams Steam production plants Other electric plant

Total power

$ 478,167,051 62,891,043

1,686,929,'790 974,870,528

3,202,858,412

Navigation Multipurpose dams; note a 287,781,773 2,751,020 43,985,631

Flood control Multipurpose dams; note a Multipurpose dams; note b Bristol flood control plant

T&al flood control

181,243,572 6,934,238 2,072,966

190,250,776

!lYibutszy erea development Multipurpose dams; note b 7,843,170

Recreation and conservation education Land between the lakes 44.241.556 Other'

Total recreation aa conservation education

- 395.; $2

44,637,058

Chemical 68,057,556 2,094,219 25&5,802

General 47,083,366 2,5&,796 17,158,080

Total $3,848,512,1~ $Ww,67~ $1,044,610,382

Total completed plant Multipurpose dams Single-purpose am Steam production plants Other electric plaut Other plant

8 W,%WW+ $10,626,007 62,891,043 795,899

1,686,929,790 974,87%528

43,966,106

161,850,946 23,731,228

4,974,437

Total $3,848,512,1+ $@+,093,677 $1,044,Q0,382

GAO Notes: a. Common to power, navigation and flood control. b. Beech River and Bear Creek water control projects.

Depreciation Provision Accumulated year ended balance

June 30. 1970 June 30, 1970

$ “J,‘;,;;;

43,%X:106 23,731,228

$ U+4,m9,178 23,160,906

500;628;515 256,548,807

751068,351 g24,447,406

1,198,m 52,433 13,573

1,264,521 32,045,249

48,921 151,209

270,991 9,858

947,517 9,488

28o,84g 957,005

$ 220,225,777 23,160,906

5~,628,515

SCHEDULE B

TENNESSEE VALLEY AUTHORITY CONSTRUCTION AND INVESTIGATIONS IN PROGRESS

JUNE 30. 1970

Power program All programs Construction in progress

Generating facilities Browns Ferry Nuclear Plant Sequoyah Nuclear Plant Paradise Steam Plant unit 3 Cumberland Steam Plant Raccoon Mountain pumped storage project

Total generating facilities

Transmission lines, substations, and other additions to power facilities

Navigation facilities 36,471”

Flood control facilities 687,756

Multipurpose facilities Tellico Dam and Reservoir Tims Ford Dam and Reservoir Upper French Broad water control system Bear Creek water control system Other

Total multipurpose facilities

Chemical plant

Recreation and conservation education facilities Land between the lakes Other

~196,950 219,819

Total recreation and conservation education facilities 1,416,769

General plant General construction equipment and materials 2,643,207 Other additions to general plant 502,123

Total general plant 3,145,330

Total construction in progress 481,029,780 54’+,819,187

Investigations for future projects Power facilities Navigation facilities Flood control facilities Multipurpose facilities

Total investigations for future projects

Total construction and investigations in progress

$245,459,468 $2455459,468 23,349,159 23,349,159

2,508,804 2,508,804 144,379,695 144,379,695

Ji&$i$$ 41;$%:;;::

53,431,807 53,431,807

7,534,054 21,679,065 3: m;,;;o”

1:998:691 7,:69,3:3 3533 9 63,540,652 560,372

2,704,754

888,730 888,730 111,051

1,057,743 2,680,252

888,730 49737,776

$4&918,510 $549,556,963

*Deduct

38

SCHEDULE C

TENNESSEE VALLEY AUTHORITY DETAILS OF POWER EXPENSE

FOR THE YEAR ENDED JUNE SO.. lS70

Provision Total before for depreciation

depreciation (exhibit II) SUMMARY Production

Multipurpose dsms Direct Multiple-use; schedule E

Single-purpose dams Cumberlsnd Basin projects; note a steam plants

Total generation Purchased power Interchange power received Interchange power delivered System control end load dispatching Other

Total production TIXtlSlSiSSiOIl Customer accounts Demonstration of power use Payments in lieu of taxes; note b Social security taxes Administrative and general

Direct Multiple-use

Total operating expense

operation &intenance Other Total

8 2,914,503 $ 2,:;;,g

4951213 .

2,036,146 5,%l,o95

1,240,247 5r%l,O95 5,96l,O95

5,%1,095 1,314,729

u,aa0,895 p;:;g

5&k%&

&oya,46i 2,455,%2

*gig-g

'3351123 l,O59,446

WHW’+ 2,455,9@

190,216,372 082,543

335,u3 1,059.446

5lr337J.23 22J78.944

19,438,253 155,107

17,@37,736 17,884,776 155.107 155,107

2,960

$75,06w34 $299,148,041 $218,633,367 $38,489,728 $42,024,946 $3741214,625

Kti generated Installed Ratio of e.verase

Production expense capacity at - Juoe 30, 1970

gross generatS& to installed

Total (mills1 (kilowatts) capacity (percent) less station use

(thousands)

l1,265,995 $ 10,364,470

SYS'ICM STATISTTCS Generation

Multipurpose dams Direct Multiple-use; schedule E

Total multipurpose dams Single-purpose dams Cumberland Basin projects; note a Alcoa dams; note c

Total hydra aeneratfon steam plants

Total generation; note d Purchased power Interchange power received System control and load dispatching Other

Total system input Delivered under Alcoa agreement Interchange power delivered

Net energy supply Shop and internal uses Transmission and transformation losses

Total kwh sales and production expense

.920

.344 1.264 1.944 2.436

3.384

29869,230 45.08

45.08 47.97 38.26 48.07

1;fy399 214471231

2,869,230 250.200

44.37 62.45 58.30

257,665,081

13314,729 17330m

1~23,830 warn

101,285,32; 1,847,4W

Tk%3% 6:917*

tp7,408,470

w: a. TVA purchases substantially all of the output of seven hydra plants in the Cumberlsnd River Basin. In accordance with memorandums

of understanding with the Corps of Engineers, Department of the Army, the Cumberlsnd Basin projects we operated for optimum pro- duction of power in conjunction with TVA’s power system, subJect to flood control, navigation, and other operating requirements of the Army.

b. Payments made to states and counties in which power operations are carried out. The basic amount is 5 percent of gross revenues from the sale of power to other than Federal agencies during the preceding year, with the provision of minimum payments under certain circumstances.

c. Operation of tvelve hydra plants of the Aluminum Company of America is coordinated with the operation of TVA’s power plants under an arrangement whereby the storage and release of water from the Alcoa plants are carried out by the company under TVA’s direction.

d. Installed capacity increased 1,183,200 kilowatts during fiscal year 1970. Additions consisted of 1,150,2OC kilowatts in s new unit at the Paradise Steam Plant, one 28,000 kilowatt unit. at the new J. Percy Priest Dam in the Cumberland Basin, and 5,000 kilowatts from modifications to B generator.

*Deduct

39

SCHEDULE D Page 1

TENNESSEE VALLEY AUTHORITY DETAILS OF NONPOWER NET EXPENSE

FOR THE YEAR ENDED JUNE SO. 1WO

Multiple-use Direct (schedule E) Total

WATER RESOURCES DEVELOPMENT

Navigation operations Studies and investigations

Navigation engineering and investigations Administrative end general expenses; schedule F

Operation and maintenance of facilities Operation Maintenance Administrative and general expenses

Provision for depreciation

Total expense of navigation operations

Flood control operations Studies and investigations

System studies and investigations Local flood studies and cooperation with other

agencies Administrative and general expenses; schedule F

Operation and maintenance of facilities Operation Maintenance Administrative and general expenses

Local flood control improvements Provision for depreciation

Total expense of flood control operations

Regional water quality management Regional water quality management Provision for depreciation Administrative and general expenses; schedule F

Total expense of regional water quality menagement

Fish and wildlife development Fish and wildlife development Provision for depreciation Administrative and general expenses; schedule F

Total expense of fish and wildlife development

Surveys and general studies for river development Surveys and general studies for river development Administrative and general expenses; schedule F

$ - - $ 806,688

T%%!

$ 806,688

-7zig

16,843 1,749,589 1’1298

1,766,432 215,864 233,162

116j330 2,X15,924 2,751,020

$2,?23,652 $3,02L743 5,745,395

$ 282,956 $ - 282,956

384,206

dk%

1,846,254 230,750

384,206

+%

23,649 1,822,605 230,750

99 2,%,3$

120;991 2497,995

* 902,91; $3,077,261 5,&6,775

1,346,385 8,410

34,447 1,389,242

284,074 6,576

15,310 305,960

Total expense of surveys and general studies for river development 784,668

Recreation projects Recreation resources development Provision for depreciation

612,114

Administrative and general expenses; schedule F 9,858

22,964 TOtal expense of recreation projects 6'+4,936

Total expense of water resources development $13,936,9?6

40

SCHEDULE D Page 2

TENNESSEE VALLEY AUTHORITY DETAILS OF NONPOWER NFf’ EXPENSE

FOR THE YEAR ENDED JUNE 30. 1970

FRRTILIZRR AND MUNITIONS DRVRLOPMSNT

Developmental production Cost of products distributed; note a

Materials used Direct manufacturing and shipping expense Indirect manufacturing and shipping expense Provisions for depreciation and depletion Recoveries from byproducts and in-process materials In-process inventory changes Finished inventory changes

Total cost of products distributed General expenses

Retirements of manufacturing plant and equipment Other general expenses

Administrative and general; schedule F Shipping order expense Provision for depreciation of idle manufacturing

plant and equipment Other

Total general expenses Total production expense

Less transfers and sales of products Transfers to TVA programs, at market prices

Fertilizer industry demonstrations Farm test demonstrations Agricultural projects Other

Total transfers Direct sales

Total transfers and sales

Net expense of developmental production

Fertilizer introduction Fertilizer industry demonstrations

Fertilizers used Educational distribution expense Administrative and general expenses; schedule F

Less industry payments for fertilizer; note b

Farm test demonstrations outside the Valley Fertilizers used Planning and supervision Administrative and general expenses; schedule F

Less farmer payments for fertilizer

Net expense of fertilizer introduction 2,497,OOl

Research and development Research and development of products and processes

Applied research Process engineering General expenses

*Deduct

812,523 19131,958

-&sz

$ 4,733,873 13,615,813 23564,511 1,842,528

748,420* 20,075

* 22,912,1 i 676,879

166,586 90s815 -$$g t ,

14,877,723 422,603 453,595 37 484 L5,791,405

i+g% 7,291,236

~092,356 14,877,723

54,553 ii$g?g 2$g%

480,108 422,603

28,712 508,820 931;rr23 -+@I3

41

SCHEDULE D Page 3

TENNESSEE VALLEY AUTHORITY OETAILS Of NONPOWER NET EXPENSE

FOR THE YEAR ENDED JUNE 30. IS70

FERTILIZER AND MUNITIONS DEVELOPMENT - continued

Research and development - continued Research and development of processes for recovery of sulfur Basic chemical and agronomic research Provision for depreciation Administrative and general expenses; schedule F

Total expense of research and development

Net expense of fertilizer and munitions development

GENERAL RESOURCES DEVELOPMENT

Agricultural projects Fertilizers used

In specific tributary areas Outside specific tributary areas

Planning and supervision In specific tributary areas Outside specific tributary areas

Less farmer payments for fertilizer In specific tributary areas Outside specific tributary areas

Agribusiness development Preliminary investigations in tributary watersheds Program planning and analysis Research on forage fertilization and utilization Alleviation of rural poverty Tenure and land use adjustment Tennessee Valley rural life conferences Provision for depreciation Administrative and general expenses; schedule F

Net expense of agricultural projects

Forestry projects Use of Valley forests Development of Valley forests Investigation of forest influences Provision for depreciation Administrative and general expenses; schedule F

Total expense of forestry projects

Tributary area development Basic investigations Development assistance in specific tributary areas Development assistance outside specific tributary areas Provision for depreciation Multiple-use operating expenses; schedule E Administrative and general expenses; schedule F

Total expense of tributary area development

Regional development planning Regional development planning Administrative and general expenses; schedule F

Total expense of regional development planning

Demonstrations in education and manpower development Demonstrations in education and manpower development Administrative and general expenses; schedule F

Total expense of demonstrations in education and manpower development

261,769 555,359

63,728 187,651

63,471 39,710 51,841 58,331 29,445 17,291

;'E 53:596

$ 185,621 1,615,618

81,685 198,114

4,673,407

$14,461,644

817,128 1,270,723

251,379 13019,344

326,655 1,345,999

410,726 5g;,t;89

131348 36,360

994,781

67,990 1,038,078

41,285 194

Opt

1,362:259

722,090 7,655

729,745

42

SCHEDULE D Page 4

TENNESSEE VALLEY AUTHdRlTY DETAILS OF NONPOWER NET EXPENSE

FOR THE YE*R ENOED JUNE 30. ,*,o

GENERAL RESOURCES DEVELOPMENT - continued

Minerals projects Mineral resources investigations Administrative and general expenses; schedule F

Total expense of minerals projects

Environmental quality projects Reservoir shoreline cleanup Regional air quality management Strip mine reclamation Research ondisposal of solid wastes Administrative and general expenses; schedule F

Total expense of environmental quality projects

Net expense of general resources development

LAID BETWEEN THE LAKES OPERATIONS

Land between the lakes operations Provision for depreciation Administrative and general expenses; schedule F

Total expense of land between the lakes operations

TOPCGRAPRICMAPPING

Topographic mapping Provision for depreciation Administrative and general expenses; schedule F

Total expense of topographic mapping

$ 385,853 5,974

13,044

$ 404.871

OTHER EXPENSE OR INCOME+'

Emergency preparedness Maintenance of bridges financed by others on TVA dams

$ 7,063

Interest income from receivables 55,901 21,592*

Other expense, net

Net expense

$ 41,372

$36,006,131

$ 16:‘% 167:775

63,816 34,787 84,292

‘,x2

215,284

$ 5,7p,l24

$ 1,142,750 270,991.

35,403

$ 1,44g,144

Notes:

a. In the discharge of its obligations under Section 5 of the TVA Act, TVA operates plants for the manufacture of products for agricultural and military purposes; conducts research and pilot plant development of new or improved processes for the production of new or existing fertilizers and muni- tions; and tests the fertilizers produced and demonstrates their effectiveness. Production is carried out on an experimental basis, manufacturing operations.

and costs are consequently affected by the developmental nature of the

Research on products and processes is not scaled to TVA's production operations. Its scope is deter- mined by opportunities to render service in the public interest; findings are made available to the public through technical publications, answers to correspondence, and discussions with technical visitors to the laboratories and plants. For these reasons, the cost of such research is accounted for under a separate program rather than as a part of production operations.

b. Sales of fertilizer materials are not on a commercial basis, but are made to organizations collaboratj ing in an educational program aimed at improving the manufacture, distribution, and use of fertilizers.

43

SCHEDULE E

TENNESSEE VALLEY AUTHORITY OPERATING EXPENSES OF MULTIPLE-USE FACILITIES

FOR THE YEAR ENDED JUNE 30. 1970

Common to power, navigation, and flood control

Operation Water dispatching Water control investigations Investigations and control of

reservoir ecology Plant protection and services

to visitors Operation and upkeep of dam

reservations Reservoir land management Other expense

Total operation

Administrative and general expenses; schedule F

Maintenance

Provision for depreciation Total common to power, nav-

igation, and flood control

Other projects

Beech River water control system Operation Maintenance Provision for depreciation

Bear Creek water control system Operation Maintenance Provision for depreciation

Administrative and general expenses; schedule F

Total other projects

Total

Total expenses Operation Administrative and general Maintenance Depreciation

Total

Total

Distributed to Flood Tributary

Power Navigation control area operations operations operations development

$ 1,130,122 125,898

1,l53,577

1,364,319

888,492 1,083,160

86,396 5,831,964 $2,332,786 8~749,589 $1,749,589

387,767 155,107 116,330 116,330 752,404 310,708 215,864 225,832

3,044,645 1228,759 939,960 875,926

10,016,780 4P7,360 3,021,743 2,967,677

96,580 48,290 4,325 1,081

49,452 8,526

24,726

9,323 4,661 243,922 109,584

$10,260,702 $4,027,360 $3,021,743 $3,077&l --

$ 583;8$ $2,;;;~;;; $l,$,;%; $1,822,605

765:255 310:708 215;864 =0,991 230,750

3~0,361 1228,759 939,960 902,915

$10,260,702 $4@7,360 $3,021,743 $3,077,261

24,726 4,689

22,165 51,580

4,662 134,338

$134 338 A

$ 7;g

7:933 48,727

$134,338

44

SCHEDUIJT F

TENNESSEE VALLEY AUTHORITY ADMINISTRATIVE AND GENERAL EXPENSES

FOR THE YEAR ENDED JUNE SO. IS70

Expenses Board of directors Office of the general manager Budget staff Washington office Information office, including technical library service Division of personnel Division of finance Division of law Division of property and supply Medical and safety services Other administrative and general

Total $9,717,336

Distribution Construction Recovered through services billed to others at cost Expense of programs

Power Water resources development

Navigation Flood control Regional water quality management Fish and wildlife development Surveys and general studies for river development Recreation projects

Multiple-use operations Common to power, navigation, and flood control Other projects

Fertilizer and munitions development Developmental production Fertilizer industry demonstrations Farm test demonstrations Research and development

General resources development Agricultural projects Forestry projects Tributary area development Regional development planning Demonstrations in education and manpower development Minerals projects Environmental quality projects

Land between the lakes operations Topographic mapping

$4,pg ¶

3,727,894

42.92 1.51

38.36

71,763

xc; 15:310 36,888 22,964

:;Z

::2 .38 .24

387,767 3.99 9,323 .lO

5;:$$ 28:712

198,114

5.15 .56 .30

2.04

53,596 36,360 $,;7,"

7:655 5,741

11,482 35,403 13,044

.55

2; .38 no8 .06

:g .u

Total $9,717,336 100.00

$ 228,905 267,482 272,546 77,199

693,102 2,179,443 2,724,054

788,695 ~375,561 1,020,352

89,997

Amount Percent of total

45

APPENDIX

.’ t

APPENDIX I Page 1

RETIREMENT SYSTEM OF THE TENNESSEE VALLEY AUTHORITY

The TVA retirement system was.established in 1939 to provide a pro-

gram of retirement, disability, and death benefits financed jointly by

contributions of TVA and of its salaried employees. Administration of

the system is vested in its own Board of Directors, and its funds are

held and invested by two trustees. Of the seven members of the Board of

Directors, three are appointed by TVA, three are elected by the partici-

pants, and the seventh is chosen by these six directors.

The operation of the retirement system is regarded as a Federal

function in general and as a TVA function in particular. As authorized

in section 301(b) of the Government Corporation Control Act (31 U.S.C.

866(b)) the General Accounting Office contracted with a firm of certi-

fied public accountants to make the audit of the system. Following are

the balance sheet of the system at June 30, 1970, and the related state-

ments of change in fund balances for the year then ended with respect to

the Fixed Benefit, the Variable Annuity, the Supplement to Medicare Pre-

mium Reserve, and the Voluntary Retirement Savings and Investment Plan

Funds, together with the auditors' opinion.

48

APPENDIX I I Page 2

LYBRAND,ROSSBROS.&MONTGONERY CERTIFIED PUBLIC ACCOUNTANTS

COOPERS .%. LYBRAND

To the Comptroller General of the United States, Washington, D. C.:

We have examined the balance sheet of the RETIREMENT SYSTEM of the TENNESSEE VALLEY AUTHORITY as of June 30, 1970 and the related statement of changes in fund balances'for the year then ended. Our

examination was made in accordance with generally accepted auditing standards, and accordingly included confirmations from the trustees and custodiansof cash and investments held as of June 30, 1970 and such tests of the accounting records and such other auditing proce- dures as we considered necessary in the circumstances.

In our opinion, the aforementioned financial statements present fairly the financial position of the Retirement System of the Tennessee Valley Authority at June 30, 1970, and the changes in

fund balances for the year then ended, in conformity with generally

accepted accounting principles applied on a basis consistent with that of the preceding year.

New York, October 8, 1970.

49

RETIREMENT SYSTEM of the TENNESSEE BALANCE SHEET, June 30,

VALLEY AUTHORITY

ASSETS:

Investments: Securities:

Bonds and notes (details annexed): At amortized cost (current redemption values or

market quotations, $67,39X,183) At market (cost, $2,966,000)

Real estate mortgages (details annexed) Preferred stocks (details annexed):

“Ai Etie PTEE k , q~I;ki~%i~~ ’ $LW,625)

Common stocks (details annexed : At cost (market quotations, 1 At market (cost, $37,507,559)

133,765,461)

United States Government obligations, at cost (approximates market)

Fund shares: 148,212 shares, at market, $18.13 per share

(cost, $4,102,953) 61,745 shares, at market, $8.31 per share

(cost, $659,859)

Properties acquired under buy and leaseback agreements, at cost, less amortization of $542,044

Real property: Land, at cost Buildings, at cost, less allowance for depreciation

of $168,304

Cash: Treasurer's fund Trustee

Receivables: Contributions Dividends, accrued interest, etc. Securities sold

LIABILITIES and FUNDS: Payables:

Securities purchased Other

Fund balances (statement annexed)

Fixed Benefit Fund

$ gl,o16,35o

3,156,411

2,198,483

m,oo6,og3

2X),377,337

220,377,337

1,928,1x6 627,000

go1,446 223,,833,919

13,824 317,624

$ 154,500 186,231

226,054,485 $226,3g5,216

The accompanying note is an integral part Of these financial statements.

APPENDIX I Page 3

Voluntary Retirement. Supplement to Savings and Investment Plan Medicare -

Variable Fidelity Premium Annuity Fund Trend Fund Puritan Fund Reserve Fund

(Note)

8b 2,644,500

485,450

30,811,507

33,941,457

$2,687,082

$513,104 33,941,457 2,687,082 513,104

333941,457

22,942 178,680

333,134 66,176

$34,542,389 #2,687,165 $513,158 $72,530

$ 270,187

x4,272,202

$34,542,389

2,687,082 513,104

78 51

5 3

$ 98 $ 100 2,687,067 513,058

$2,687,165 $513,158

$70,173 70,173

70,173

70,173

1,210

1,147

#72,530 $72,530

51

APPENDIX I Page 4

RETIREMENT SYSTEM of the TENNESSEE VALLEY AUTHORITY INVESTMENTS in SECURITIES

June 30, 1970

FIXED BENEFIT FUND (at cost or amortized cost):

Bonds and notes: Principal amount:

Utility Industrial Financial Foreign Railroad

Unamortized (discounts) and premiums, net

Commercial paper Real estate mortgages:

Veterans Administration Federal Housing Administration Commingled Other

Preferred stocks: Industrial

Common stocks: Industrial Utility Commingled Other

VARIABLE ANNUITY FUND (at market): Bonds and notes:

Industrial Financial

Preferred stocks: Industrial

Common stocks: Industrial Utility Other

$22,885,000 26,130,765 15,977,421 11,556,ooo

3,531,583

L63ww) g,445,350

,571,ooo $ gl,o16,35o

195~0,035 9 ,-391 3,156,411

2,198,483

88,408,ogo 16,9@,645 13,8Oo,ooo

4,828,358 la,oo6,ogj

$220,377,337

1,078,500 ~L566,ooo # 2,644,500

485,450

29,502,497 7y735

,. 30,811,507

$ 33,94x,457

53

RETIREMENT SYSTEM of the TENNESSEE VALLEY AUTHORITY STATEMENT of CHANGES in FUND BALANCES

for the year ended June 30, 1970

Fixed Benefit Fund AnnuT Savings

Total Account

Contributions: Members Tennessee Valley Authority

Premiums retained Investment income:

Interest Dividends Rents (less depreciation and

amortization of $93,651)

Net realized gains (losses) on sales of investments

Capital gains distribution Net unrealized appreciation (depreciation)

of investments

$ 2,978,917 8 2,978,917

129355,380

5,576,002

3,464,678

178,650

(19419,599)

Transfers: Interest Accumulations

Administrative expenses Withdrawals Death benefits Retirement benefits

Net increase (decrease) Balances, June 30, 1969

Balances, June 30, 1970

23,134,028 2,978,917

(2.063.693)

# 21,070,335

4b 470,964 358,022

1,032,508 6,o29,6f&

$a 7,8gl,ug

9b 13,179,186 212,875,299

#226,054,4&-j

1,64i’,o% (4,490,917)

9b 135,095

4b 353,520 186,716

$ 540,236

(44 405,141) 42,396,913

$41,991,772

The accompanying note is an integral part of these financial statements.

54

APPENDIX I Page 5

Fixed Benefit Fund Pension Investment

Accumulation Reserve Account Account

8 12,355,380

5,576,002 33464,678

178,650

560,523

Variable Annuity

Fund

$ 4,125,606 $1,103,063 $238,735

288,239 658,677

($1,98o,lz) (5,932,161)

22,135,233 (1,980,122)

(1,967,o62) 2,427,224

$ 229595,395

$ 470,964 4,502

845,792 6,029,655

$ 7,350,913

$ 15,244,482 161,598,284

$176,842,766

319,967

(?&,660,155)

(@,660,155) 8,880,102

$79219,947

(7.138;319) (7,997,958)

2,o63,693

(?I 5,934,265)

$ 370,249

299,092

$ 669,341

($ 69603,606) 40,875,8o8

$34,272,202

Voluntary Retirement Savings and Investment Plan

Fidelity Trend Puritan

Fund Fund

71,784 22,897

98,6w 14,302

11,039,178) 1125,586) 234,269 150,348

(4,995) $ 229,274

8b 251,383

8 251,383

($ 22,109) 2,7og,176

$2,687,067

4995

$155,343

$ 48,352

$ 48,352

$106,991 406,067

8513,058

Supplement to Medicare

Premium Reserve Fund

(Note)

$71,897

633

729530

$72,530

$72,530

$72,530

55

APPENDIX I Page 6

NOTE to FINANCIAL STATEMENTS

D uring the year ended June 30, 1970, the Board of Directors approved an amendment, Medicare"

retroactive to July 1, 1966, to the "Supplement to contract between the Retirement System of the Tennessee

Valley Authority ("Retirement System") and Blue Cross - Blue Shield of Tennessee ("BCBST"). Under this amendment, if there is or will be an excess of funds over that considered necessary by BCBST to maintain adequate reserves under the contract,then monthly premiums (deducted from subscribers) may be retained by the Retirement System until it again becomes necessary to remit premiums to BCBST. Any such premiums retained are to be separately accounted for by Retirement System until the Board of Directors determines how they shall be used for additional benefits for subscribers, to reduce future increases in premium rates, to reduce existing premium rates or any combination thereof. For the year ended June 30, 1970, premiums retained by Retirement System under the contract amounted to $71,897. Subsequent thereto, premiums totaling $12,682 for the month of August, 1970 were not deducted from subscribers and that amount was paid from this fund to BCBST.

U.S. GAO Wash., D.C.

56